One of the world's largest insurance brokers and risk advisors, Marsh, has established a Collateral Solutions Group (CSG) to find new ways for insurers to obtain the best possible collateral terms.

The new group is partly a response to the difficulties insurers have experienced using letters of credit (L/Cs) from banks as collateral.

L/C problems

Insurers dealing in certain types of cover such as commercial auto, general liability and workers' compensation are routinely called upon to post collateral such as L/Cs to guarantee that they will be able pay any claims.

However, since the credit crunch, banks have reduced credit facilities for insurers and increased L/C fees.

In some instances, insurers have only been able to secure L/Cs by posting cash collateral.

Initiatives

The CSG will pursue several initiatives, including actively monitoring collateral requirements in the insurance sector and developing analytic models to compare and contrast insurers' collateral requirements.

The group says it will also partner with leading banks to develop alternative collateral facilities.

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